Farm credit goes awry

The other day TV channels were talking about the Rs 15-lakh loan that the sacked Railway Minister Pawan Kumar Bansal got from his son’s firm. “Where will you get loan for a mere three per cent?” Screamed a TV anchor. Little did he know that this year alone, Finance Minister P Chidambaram has provided roughly Rs 6.5 lakh crores of crop loans to the rich and resourceful agribusiness industry at a nominal interest rate of 4 per cent.

Presenting the 2013 budget, Mr Chidambaram has enhanced the budgetary allocation for farm credit to Rs 700,000-crores this year. This is certainly a quantum jump from Rs 575,000-crores given to the farm sector in 2012-13. It gives an impression as if such large availability of farm credit at an interest rate of 4 per cent is serving the small and marginal farmers very well. Interestingly, it is not only the government which goes on patting itself on the back for helping the farmers. Even the Reserve Bank of India has appreciated the disbursal of such massive farm credit to farmers. Accordingly, between 2000 and 2010, farm loans increased by 755 per cent. Certainly this is a mammoth growth, and it provides all the reasons to cheer.

As I said earlier, in 2012-13, a budgetary provision of Rs 5,75,000-crore for farm credit was made. A year earlier, in 2011-12, Rs 4,75,000-crore was provided. A damming news report in Dainik Jagran however tells us where the money is going. According to the report, a confidential document available with the Ministry of Finance categorically states that despite the increase in farm credit by over 2.5 times in past five years, less than 6 per cent of the total institutional credit is made available to small and marginal farmers. Ironically, the Prime Minister, Finance Minister, Agriculture Minister and the ruling party along with its army of economists and planners never get tired of telling the nation of the remarkable strides taken in reaching credit to small and marginal farmers.

In other words, less than Rs 50,000-cr of the Rs 7 lakh crore provided for farm credit will actually benefit small farmers. Remaining amount of Rs 6.5 lakh crore at 4 per cent interest will be appropriated by agribusiness companies, warehousing corporations and state electricity boards. You can blame Pawan Bansal for the preferential treatment he got in getting a loan at such a paltry interest rate, but what about the Finance Minister who wilfully goes on disbursing such largesse to the rich industrialists year after year?

This is in fact India’s mother of all scams. Even if you add up the losses in 2G Spectrum, Coal block distribution and Commonwealth games, the total doesn’t even reach half of the farm credit swindle.

With over 2.90 lakh farmers committing suicide in the past 15 years, and with another 42 per cent farmers wanting to quit agriculture if given a choice, the continuing agrarian crisis on the farm front does justify the need to provide farm credit to farmers at a low interest rate. But where is the justification of squandering massive credit to the business and corporate entities at a paltry interest rate every year? And that too in the name of farmers.

In 2007, of the total credit of Rs 2,29,400-crores advanced by banks, small farmers share was a mere 3.77 per cent. In other words, 96.23 per cent of the farm credit disbursed in 2007 was actually cornered by big farmers or agribusiness companies. In 2011-12, while total farm credit had swelled to Rs 5,09,000-crore (against a target of 4,75,000-crore) small and marginal farmers got only 5.71 per cent. It is therefore obvious that despite knowing where the fault is the government had deliberately supported agribusiness companies.

Over the years to ensure that nationalised banks meet the priority sector lending target of 18 per cent, the government enlarged the definition of farm credit to include indirect credit by banks to agribusiness corporations. Even prior to the year 2000, it had included drip irrigation manufacturers and certain other agribusinesses to receive farm credit. Later, input dealers, rural electrification companies, agri-clinics, warehousing corporations, agribusiness companies investing in cold storages and mandi sheds, and also to middlemen. Tata Institute of Social Sciences has in a study found that between 2000 and 2006, “while the direct financing grew at an annual rate of 17 per cent, indirect finances grew at an astonishing annual rate of 32.9 per cent.”

Interestingly, the number of farm loans above Rs 25-crores have grown by 54 per cent of the total indirect financing in 2006. Now, where are farmers needing loans of Rs 25-crore or even Rs 10-crore? It is primarily for this reason that banks in Mumbai advanced 42 per cent of the total farm credit for Maharashtra in 2008. In 2009-10, the total farm credit disbursed in Delhi and Chandigarh exceeded the entire advances made to Uttar Pradesh, Bihar, Kharkhand and West Bengal.

It is primarily for this reason that small farmers have been left high and dry. They are left with no choice but to depend on the money lenders who charge exorbitant interests. No wonder, the serial death dance on the farms in the form of suicides show no signs of ending. It has a lot to do with the non-availability of institutional credit.

Time and again we have heard that agricultural credit plays an important role in improving farm production, productivity and mitigating farmer’s distress. Such exuberance in loan disbursal comes at a time when in a recent study on "Farm Credit" , the industry association ASSOCHAM analysing the disbursement of credit over the last decade, has listed misdirection in farm loans, increase in proportion of indirect credit by banks, misuse of interest rate subvention for diverting credit to other sectors, imbalances in quantity of credit in relation to size of the farm and crops they raise, and virtual exclusion of small and marginal farmers from institutional credit as some of the major problems besetting this sector.

If you have underlined the last point in ASSOCHAM report, it tells us very clearly where institutional credit has failed to deliver. By excluding small and marginal farmers, which forms nearly 80 per cent of the agricultural workforce, hasn't the government actually failed to reach the benefits to those who need it more? How can the Reserve Bank of India be a mute spectator to the visible misdirection, which in reality should be more visible to them, all these years? Isn't it a callous oversight or is it deliberate?

The massive crop loan swindle comes at a time when the Comptroller & Auditor General (CAG) has questioned the Rs 74,000-crore farm loan waiver, announced in the 2009 budget with a lot of fanfare. Putting the entire provisioning of the farm credit allocations under a cloud, the CAG report says that nearly 8 to 10 per cent of the beneficiary farmers, which means no less than 35.5 lakh farmers’ did not get any advantage of the loan waiver, and similarly a large number of undeserving farmers walked away with the exemption to repay.

Well, the fact remains that the rich and powerful have all these years been milking the farm credit that was actually meant for small and marginal farmers. The Reserve bank of India, the National Bank for Agriculture and Rural Development (NABARD) as well as the Ministry of Finance have been a willing complicit to what is arguably India’s biggest scam.